In attempt to overcome some of the problems current ICO market has, Vitalik Buterin and his team came out with the concept of DAICO. The idea is based on the merging concepts of DAO with the ICO concept, where investors can control the way how funds are withdrawn from the smartcontract. While this concept really solves some of the questions and is a step forward towards a more reasonable ICO market, we feel that there are still some challenges to be handled. Most of these questions are related to the way how disciplined should be investors to really make reasonable decisions, and what will happen if short term motivation of investors prevails long term product development goals. We would like to propose a different approach to solve the same set of problems:

Project team generates their token and defines the basic price for their token (e.g. 0.001 ETH per token).

The ETH/$ value of all tokens generated is enough for the project to complete the development, or more realistically, to make the project reach the break-even point. (With some reserve in mind).

The tokens are not for SALE by project owners. The smartcontract, which holds the tokens, doesn’t really have the “payable” function. Note the variations described later.

But tokens inside the smartcontract can be used to pay for the job being done by developers, designers, managers, salespersons and others working on the product.

These payments are available for review by a third party (potential investors) which could validate that the amount paid is reasonable and the project really moves in the right direction. For example, every issue in the project issue tracker is recorded into a public ledger with information on what that issue is and associated transaction.

Such payment for the job done can happen exclusively in the project tokens, but, if required, can happen as a combination of project tokens and traditionally established fiat or cryptocurrencies (may be outside of the publicly accessible ledger)

People who have earned the coins are free to sell these coins on an open market to multiple investors (for example, through EtherDelta or a separate smartcontract as described below).

Investors are buying the tokens from people who actually put effort to move the product further, rather than buying them from the project owner.

Optionally, to ensure that there is a demand from investors to buy tokens from developers, investors can send funds to another smartcontract — a smartcontract used to demonstrate the interest of the crowd towards the project:

Developers can send “sell” their tokens to this smartcontract for ETH stored in it.

Investors can withdraw funds from that contract after some period of time (for example 1 month) if they feel they don’t want to be a part of this project anymore.

As a result, there is no actual “ICO” event — but there is something which we call an “Iterative Investment”. Investors are buying only when the project progresses forward. Chances that the funds are misused are minimized. On the early stages, project owners overpay developers paying them more in “project tokens” than they would normally pay in dollars. Developers sell that to investors with discounts to account for the risk taken. On further stages, when it is clear that the project is moving in the right direction — these premiums/discounts become smaller and smaller.

In case if project nature requires some real funds for some asset (not lambos) — then a smartcontract may be adjusted to release a fixed amount of tokens for sale proportionally to the funds spent to pay development team.

The biggest problem in this concept is the need to be able to review transactions to really confirm that the token payments done are matching the real job done. At https://dogezer.com we solve that by providing our own set of tools and a special role of a “Watcher” in a team to be able to track the progress. Other solutions may require manual logging of a task completed into each token transaction or publicly accessible report being periodically published by the project owner.

Sounds good. Small investments over time, e.g. with paychecks, are much more financially sound than a big one-off investment, and are less risky, and as you say the discount on investment or price of tokens can increase as the project moves forward, returns increase and risk reduces. I think the use of a governance protocol like Democracy Earth or Holographic Consensus would also help with iterative investment. The organization could set in its code a quorum for investors to vote on a budget, as well as other rules.

Interesting thoughts, I especially like the concept of making use of the token as internal payment as opposed to an external offering.

The issue that I see with a lot of these controlled/structured ICO mechanisms is there are too many ‘Perfect World Assumptions’. Here are a few of the ones that I think are concerning:

Cost of writing an ICO contract and making a prettified Landing Page ~$0. Which means an ICO issuer has little to no incentive to put checks and bounds on the capital they raise.

Who determines how the coins are to be issued to employees that are building the product? Centralized by the founder? If it is determined by the investor pool - how does one reconcile with (1) the body of investors changing over time (esp. with liquidity offered by various exchanges) and (2) misalignment between short term incentives of investors (i.e. pushing price up) and long term incentives of the company/non-profit/issuer of token?

How do we begin to account for the general variability involved in building a startup (unaccounted for edgecases)? Should token holders be issued new tokens if the startup piviots? How about non-tokenized expenses - i.e. flying to attend meetups all around the world (lol) and spreading the word of your idea?

We also do believe that in this approach it may happen that in some cases no fundraising will happen at all. Developers, after investing their time and effort and seeing the progress, may prefer to keep the coins for themselves with all of the future benefits ownership of these coins will bring in. This may be especially true in a world of basic income, or in a gig economy world, where person is working on multiple “gigs” in parallel (one to cover basic necessities, and others as a form of investment). So ICOs may go away as another sort of “intermediary” between creative party and income/value created by future product.

All this may open a door towards a next phase of decentralization where a person is a member of multiple organization (sometimes DAOs) at the same moment of time, and able to shift his focus between different organizations basing on how they progress. Products will need to convince their “developers” to “invest” their efforts in, rather trying to take an advantage of uneducated investors - which should increase the quality of projects proposed.

The governance model is still skeletal. Why not have the development team invite Ethereum Alliance members join as “watchers” or auditors of the development process and enable them to be rewarded with tokens for doing the audit function. If the development team is not performing, the auditor is vested in getting things moving and will be motivated to audit honestly to maintain reputation in the community because their role is publicly known to participants in the DAICO.